World Bank approves $4.3-bn loan to India

The World Bank today approved four loans worth $4.3 billion (about Rs 20,631 crore) to help India finance its infrastructure programmes and further strengthen the capital base of state-run banks. The approved loan includes a a budgetary support of $2 billion for capital infusion in select public sector banks to help them maintain credit growth.

“This is a crucial time to support India. While the worst of the crisis seems to be behind us, doubts linger about the strength of the comeback, partly because the strength of the global recovery is uncertain,” said Roberto Zagha, World Bank country director for India.

The approval also includes a $1.2-billion lending for the government-run India Infrastructure Finance Company Ltd (IIFCL) that will provide long-term funds to public-private partnership (PPP) projects in road, port and power sector.

“The infrastructure sector needs funds for over 15 years. Highway and power constitute 45 per cent of infrastructure requirement. Such projects will be funded by this loan,” IIFCL Chairman S S Kohli said.

The government has estimated that public sector banks will require at least $4.8 billion during 2009-11 to maintain credit growth over the medium term. For the infrastructure sector, the Planning Commission has estimated that an investment of $500 billion is required during the Eleventh five-year plan (2007-12).

The World Bank loan also includes $1 billion loan for PowerGrid and $150 million for improving water supply and sanitation project in 2,600 villages of Andhra Pradesh.

“The loan will enable PowerGrid to strengthen the existing transmission system as well as expand the Indian national grid which will help the government achieve its objective of ‘Power for All by 2012’,” said S K Chaturvedi, chairman, PowerGrid.

The loans to the banking sector and PowerGrid have a 30-year maturity including a five-year grace period, whereas the loan to IIFCL has a maturity of 28 years including a grace period of 7.5 years. The loans will be disbursed in a single tranche after January 1, 2010.

The World Bank also said although there was uncertainty about the pace of economic recovery, current trends suggested a growth rate of 5.5 to 6.5 per cent for 2009-10 was realistic.